GM IPO: I’m On The Fence
General Motors is set for an initial public offering, one that will reduce ownership by the Treasury to less than 50% of the total company. The move was expected by analysts after the firm started producing a profit after debts were written off in bankruptcy and the US Treasury holdings were converted to stock.
Debt Free Company
General Motors saw its own dose of controversy when a judge allowed the US government to create new rules for bankruptcy just for GM. During a traditional bankruptcy, stockholders lose everything, the assets remaining are sold, and the creditors (those that lent the company money via bonds) are given the proceeds from said asset sales.
However, for General Motors, the previous creditors got 10% of the new company instead of the proceeds from an asset sale, the stockholders were wiped out, and the unions who had contracts with company lost nothing. The Government, of course, got a 61% stake for it’s bailout cash.
Why I’m On The Fence
I am not at all confident that the problems that initially plagued the company will not come back from the dead. First, the United AutoWorkers did not have to negotiate a better contract with GM. Instead, the billions upon billions of dollars the firm owes in pensions will live on and without any more reasonable terms. (You might be interested in this piece: Even GM Employee’s Won’t Invest in GM and GM is Done from 2008. )
Second, the Treasury will wind down its position to 49%, less than half, but I still don’t want to be on the wrong end of a proxy fight with the US government. The fact of the matter is simple, betting on GM is like betting on what the Congress will do tomorrow. We can’t know, and when you don’t know, an investment isn’t an investment at all, it’s a gamble.
